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HomeOpinionEthiopia: The Illusion of Economic Growth Amidst Deep-Rooted Challenges

Ethiopia: The Illusion of Economic Growth Amidst Deep-Rooted Challenges

Economic Growth illusion _ Ethiopia
Urban development projects in the capital Addis Ababa have been painted by government cadres as a testimonials for economic growth in Ethiopia (photo : Addis Ababa / PD)

By Yohannes Abegaz

Ethiopia, a nation frequently spotlighted for its rapid economic expansion, presents a compelling case study in the disparity between GDP growth and genuine economic development. Lauded by global institutions like the International Monetary Fund (IMF) for its impressive GDP figures, Ethiopia’s economic story is far more nuanced and complex. The country grapples with high inflation, soaring unemployment, ongoing conflicts, fiscal instability, and diplomatic isolation, painting a stark contrast to the narrative of unbridled prosperity.

The Historical Context of Economic Growth

Ethiopia’s journey towards economic growth began in earnest in the early 2000s. Following years of civil war and economic stagnation, the government implemented a series of economic reforms aimed at revitalizing the country. These efforts were part of the broader Plan for Accelerated and Sustained Development to End Poverty (PASDEP), which sought to transform Ethiopia into a middle-income country.

The results were impressive on paper. Between 2004 and 2019, Ethiopia’s economy grew at an average annual rate of about 10%, making it one of the fastest-growing economies in the world. Major infrastructure projects, such as the construction of the Addis Ababa Light Rail, the expansion of the road network, and the ambitious Grand Ethiopian Renaissance Dam (GERD), symbolized this growth. These projects aimed to boost productivity, improve connectivity, and achieve energy self-sufficiency.

However, beneath these headline figures lay significant structural issues that would later manifest as serious economic challenges.

The Mirage of GDP Growth

While Ethiopia’s GDP growth rates have been impressive, they have not necessarily translated into broad-based economic development. Inflation remains a persistent problem, often running in double digits. This high inflation rate erodes the purchasing power of ordinary Ethiopians, making daily necessities increasingly unaffordable. According to the World Bank, Ethiopia’s inflation rate reached nearly 25% in 2022, driven by factors such as currency depreciation, supply chain disruptions, and ineffective monetary policies.

Unemployment, particularly among the youth, remains alarmingly high. Despite the robust economic growth, job creation has not kept pace. Ethiopia’s burgeoning population, with a significant proportion of young people, faces limited employment opportunities. According to the International Labour Organization (ILO), youth unemployment in Ethiopia was estimated at around 27% in 2020. This disparity highlights the gap between economic output and the ability to generate sustainable livelihoods for the populace.

Poverty and Inequality

Despite significant economic growth, poverty remains widespread in Ethiopia. According to the United Nations Development Programme (UNDP), over 20% of the population lives below the national poverty line. This means millions of Ethiopians lack access to basic services such as clean water, healthcare, and education. The World Bank reports that rural poverty is particularly severe, with many subsistence farmers struggling to make ends meet.

The distribution of wealth in Ethiopia is also highly uneven, exacerbating social and economic inequalities. Urban areas, particularly the capital Addis Ababa, have seen more significant benefits from economic growth compared to rural regions. This urban-rural divide is a critical challenge for policymakers seeking to create an inclusive economic model that benefits all citizens.

The Impact of Conflict and Instability

Ethiopia’s internal conflicts, particularly the ongoing conflict in the Tigray region, have had devastating impacts on economic stability and development. The war, which began in November 2020, has caused immense human suffering, displaced millions, and led to widespread destruction of infrastructure. The conflict has also strained Ethiopia’s relations with key international partners, further isolating the nation.

The humanitarian crisis has diverted resources and attention away from development goals. According to the United Nations Office for the Coordination of Humanitarian Affairs (OCHA), more than 9 million people in northern Ethiopia require humanitarian assistance as of early 2024. The disruption of agricultural production in conflict zones has led to food shortages and exacerbated the country’s economic woes.

Fiscal Health and International Relations

Ethiopia’s fiscal health has been a point of concern. The nation faces substantial external debt, and there have been instances of missed debt repayments. According to the IMF, Ethiopia’s external debt was estimated at around $28 billion in 2021, raising questions about fiscal sustainability and the effectiveness of public spending. The government’s ambitious infrastructure projects, while vital for long-term development, have been financed through external borrowing, creating a debt burden that limits fiscal flexibility.

Dwindling foreign currency reserves further compound these problems. Ethiopia’s ability to engage in international trade, purchase essential imports, or stabilize its currency is severely restricted. This often leads to a vicious cycle of currency depreciation, inflation, and economic decline. According to the National Bank of Ethiopia, the country’s foreign currency reserves were critically low, covering less than two months of imports by late 2022.

Diplomatic and economic isolation has been exacerbated by Ethiopia’s exclusion from trade programs like the U.S. African Growth and Opportunity Act (AGOA). AGOA provided valuable access to the U.S. market, benefiting sectors like textiles and apparel. The loss of AGOA privileges in January 2022, due to concerns over human rights abuses in the Tigray conflict, has affected exports and job creation, highlighting the broader consequences of strained international relations.

Recent Developments and Challenges

Recent developments in Ethiopia reflect both the potential for recovery and the formidable obstacles ahead. In November 2022, a peace agreement was signed between the Ethiopian government and Tigrayan forces, raising hopes for stability and economic recovery. However, the implementation of the peace deal remains fraught with challenges, including ongoing security concerns and the need for extensive humanitarian aid. The ceasefire has been tenuous, with sporadic clashes reported even after the agreement, indicating that lasting peace is still a distant goal.

The government has also launched initiatives to revitalize the economy, including reforms to attract foreign investment and improve the business environment. The Homegrown Economic Reform Agenda, launched in 2019, aims to address structural weaknesses, enhance private sector participation, and modernize key sectors. However, these efforts require substantial investment and sustained political will. The success of these reforms is also contingent on maintaining political stability and addressing the root causes of internal conflicts.

The global economic environment poses additional challenges. The COVID-19 pandemic has left lasting impacts, and the war in Ukraine has disrupted global supply chains, affecting food and fuel prices. Ethiopia, heavily reliant on imports for essential goods, faces increased costs and supply shortages. According to the World Food Programme (WFP), the combined effects of conflict, COVID-19, and global price hikes have left millions of Ethiopians facing severe food insecurity.

Pathways to Genuine Economic Development

For Ethiopia to achieve true economic development, comprehensive and sustained efforts are essential:

1. **Economic Stabilization:** Controlling inflation and stabilizing the currency through sound monetary policies is crucial. Building foreign reserves and ensuring fiscal discipline are essential steps toward economic stability.

2. **Inclusive Growth:** Creating employment opportunities and reducing poverty should be priorities. Investments in agriculture, manufacturing, and services can generate jobs and drive inclusive growth, particularly for the youth. Expanding access to education and vocational training can equip young Ethiopians with the skills needed for the job market.

3. **Institutional Strengthening:** Strengthening institutions to maintain the rule of law, combat corruption, and ensure fair distribution of resources is vital. Effective governance will create a conducive environment for economic activities and attract investments.

4. **Infrastructure Development:** Rebuilding and modernizing infrastructure is fundamental for long-term development. This includes not only large-scale projects like GERD but also investments in transportation, healthcare, and education to improve the quality of life.

5. **Peace and Security:** Resolving internal conflicts and ensuring national security are paramount. Peace-building initiatives and disarmament programs can help stabilize the nation and create an environment conducive to economic activities. Long-term reconciliation efforts will be essential to address the root causes of conflict and ensure lasting peace.

6. **Human Capital Investment:** Investing in education and healthcare is crucial for developing a skilled and healthy workforce capable of driving innovation and productivity. Improving access to quality education and healthcare services can enhance human capital and drive economic growth.

7. **International Engagement:** Restoring relationships with international financial institutions and trade partners is vital. Re-engaging with programs like AGOA can open new markets and opportunities for growth. Diplomatic efforts should focus on rebuilding trust and fostering mutually beneficial partnerships.

Conclusion

Ethiopia’s experience underscores the complex interplay between GDP growth and true economic development. While the nation has achieved remarkable GDP growth, the persistent challenges of high inflation, unemployment, conflict, fiscal instability, and diplomatic isolation reveal a more nuanced reality. True economic development for Ethiopia requires a holistic approach that addresses these underlying issues, fosters inclusive growth, and ensures long-term stability and prosperity for all its citizens. Only by confronting these multifaceted challenges can Ethiopia realize its potential as a beacon of sustainable and equitable development in Africa.

Sources:

1. International Monetary Fund (IMF) – Various reports and data on Ethiopia’s economic growth.
2. World Bank – Reports on inflation, poverty, and economic conditions in Ethiopia.
3. United Nations Development Programme (UNDP) – Data on poverty and human development in Ethiopia.
4. International Labour Organization (ILO) – Statistics on unemployment and labor market conditions in Ethiopia.
5. United Nations Office for the Coordination of Humanitarian Affairs (OCHA) – Information on the humanitarian crisis in Ethiopia.
6. National Bank of Ethiopia – Data on foreign currency reserves and economic indicators.
7. World Food Programme (WFP) – Reports on food insecurity and the impacts of global economic disruptions on Ethiopia.
8. International Crisis Group – Analyses of the conflict in Tigray and its impacts on Ethiopia’s stability and economy.

Editor’s note : Views in the article do not necessarily reflect the views of borkena.com


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4 COMMENTS

  1. The much-hyped economic growthe of the country turned out to be just amirage in reality. Besides, the GDP or GNP indicator doesn’t necessarily reflects the real economic growth and has its own inherent drawbacks such as the failture ito account for the degree of the income iequality amon people. Esxpecially this is true when it comes to urban vs rural population economics benefit where 80% of ethiopia’s populace lives in a subsistence agrarian economy.. Failure to indicate sustainability of the growth rate over time and exclusion of environmental costs /damage or and failure to include informal market transactions and curruption issues.. Purchasing Power iwould be more practical and reflective the state of health of economic situation in any given case I guess. Whatever little groth achieved in that short period beween 2008 to 2016 was fuelled by foreign debt and loans and large portion of that was lost to curruption of TPLF and its cronies in power at the time. With all that debt flsupposedly spendv on infrastructure , there is no even meanigful infracture built in some regions like the Somali region . Only ione single road and one smaal airportbin Jijiga were built. In any rate, whatever left little from the economic gains made , the devasting conflic in Tigrai and other tegions obliterated and ducke up.. The errant boy wannabe king i Abiy now has no economic intelligible visions nor plan but just seating there and busing himself and talking about nonsense of medamer and gospel ecomics and other unintelligible things to pronlong his grin on power. As of todaty he accepted IMF board posed conditions to devaluate the currency according to an African Reporter news outlet. That pretty sums up the grime economic situation of the country.

  2. The much-hyped economic growth of the country turned out to be just amirage in reality. Besides, the GDP or GNP indicator doesn’t necessarily reflects the real economic growth and has its own inherent drawbacks such as the failture ito account for the degree of the income iequality amon people. Esxpecially this is true when it comes to urban vs rural population economics benefit where 80% of ethiopia’s populace lives in a subsistence agrarian economy.. Another thing is the failure to indicate sustainability of the growth rate over time and exclusion of environmental costs /damage or and failure to include informal market transactions and curruption issues.. Purchasing Power iwould be more practical and reflective the state of health of economic situation in any given case I guess. Whatever little groth achieved in that short period beween 2008 to 2016 was fuelled by foreign debt and loans and large portion of that was lost to curruption of TPLF and its cronies in power at the time. With all that debt flsupposedly spendv on infrastructure , there is no even meanigful infracture built in some regions like the Somali region . Only ione single road and one small airportbin in Jijiga were built. At any rate, whatever left little form economic gains from that period , the devasting conflic in Tigrai and other tegions obliterated and sucked up.. The errant boy wannabe king i Abiy now has no an intelligible economic vision nor other growth plan but just seating there and busing himself with and talking about nonsense of medamer and gospel ecomics and other unintelligible things to prolong his grip on power. As of today he accepted the IMF board posed conditions to devaluate the currency according to an African Reporter news outlet. That pretty sums up the grime economic situation of the country.

  3. Excellent article by the dear brother Obbo Yohannes Abegaz. He is in congruence with what many other experts have been advising the leaders of that gem of the colored for quite some time now.

    Among his number of suggestions the 5th one is the deciding factor for the rest of the others. That is, if there is no sustained peace and stability, the entire game strategy will fall apart right before its fruition and the country will remain in a state of quagmire it is facing now for no end in sight. With peace and stability those who have the technical and intellectual horsepower will have the respite to put their development plan into action. That is why I have been crying out loud for peace and stability. With peace stability an all out industrialization will be possible. An all out industrialization will create a massive middle class majority and with a middle class being the majority, that country can say kiss and good bye to despots once and for all. Just look at the history of certain countries in Asia(Don’t you dare include the commies in Beijing) and Chile.

    My darling sweetheart is Taiwan. I had the privilege and the opportunity to see that island nation transform itself from the rule of murderous despots, camphor cooking dutchie and widespread brothels into a fully developed industrialized nation basking in robust rule of law. Then there is South Korea and even Malaysia. In my book Chile is in this mix. The peoples of these countries did not take to the bushes to achieve what they have now. They did not have what they have now but they have the peace, stability, massive young population and those who had the knowhow. Our old country have the same valuable resources but without peace and stability. It has to live with cycles of senseless violence, lack of rule of law by successive regimes and abject poverty.
    Keep writing brother. Peace y’all!!!

    • What we luck is leadership which values humanity and respect the rule of law. All successive leaders are dictators. The current one is someone who aspires to be a king but doesn’t have what it takes to be one.

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